The assets may be listed on the basis of their value in a going concern, or on the basis of the prices they are estimated to bring at forced sale. The best practice is to list the assets to show, in one column, their nominal value, and in another column the amounts they are expected to realize. The statement is prepared for the express purpose of showing the probability of creditors—preferable, secured, partly secured, and ordinary—receiving their claims in full or being obliged to accept a dividend. In preparing such a statement, therefore, the investigation should be extended beyond the mere bookkeeping records. While the statement should be based on the properly balanced books of account, it must be supplemented by information from other sources.
The statement of liabilities should include, not only all of the liabilities shown on the books of the debtor, but all other enforcible claims, including contingent liabilities on account of the debtor's name being on commercial paper as an endorser.
Preferable claims for taxes, wages, and salaries which must be paid in full out of the assets of the estate, should be deducted from the assets in order to show the net value of the estate available for distribution among ordinary creditors. The details of such claims should be included among the liabilities, but without extending the amounts to the total column.
Claims of secured creditors also are entered on the liabilities side of the statement, but are not carried to the total column. Such claims are deducted from the assets forming the specific security held, the balance only being included among the assets available for distribution and carried to the total assets column.
Partly secured claims are entered among the liabilities, but the amount to which they are secured is deducted, and the balance, which must take the same chances of payment as other unsecured claims, is entered in the liabilities column. The corresponding assets are entered on the assets side but not extended.
A Deficiency Account Which Shows the Causes of Loss
These adjustments are necessary to show clearly the net assets that will be available for the ordinary creditors, and the total amount of claims to be satisfied out of these assets.
Every statement of affairs should also have appended to it schedules showing the fullest particulars of the different entries which appear in the statement. The names and addresses of all creditors should be given and the nature of the debt, whether a trading debt or for borrowed money, should be clearly shown. Full particulars of any security held should also be given.
It is much more difficult to ascertain the value of the assets of a bankrupt than the amount of the liabilities. While it is comparatively easy to get at the cost or book value of the assets, if the books have been properly kept, it is usually necessary to write off a considerable portion of this value to arrive at the amount likely to be realized on forced sale. It is usually advisable, therefore, to call in an appraiser, familiar with the line of business involved, to set the values of the assets on the basis of a going business and on forced sale.